Consumers Blast AOL Merger

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Consumers Blast AOL Merger

WASHINGTON – A coalition of consumer groups told the Federal Communications Commission Wednesday that America Online's proposed purchase of Time Warner should be rejected unless it is made more competitive.

Consumers Union, the Consumer Federation of America, the Media Access Project, and the Center for Media Education argued the merger would diminish the number of voices available to the public, failing to meet the FCC requirement that the combination be in the public interest.

As proposed, the merger is "inconsistent with the public interest," they said in a filing with the FCC.

A spokeswoman for AOL disagreed and said the merger, "would deliver tremendous benefits to consumers, bringing people around the world more choice and more convenience in accelerating the roll-out of broadband services."

The combined giant would own cable companies, Internet service providers, a movie studio, major recording labels, magazines such as Time and Fortune and more.

The consumer groups said the new company, which would likely compete with a similar behemoth owned by AT&T Corp., would be able to capture a large market for movies and other content moved across the Internet.

But perhaps most significant, the consumer groups said, the combined AOL firm could set its own standards over basic utilities of the Internet age, including email, instant messaging, buddy lists, calendar management, and electronic programming guides.

"These interfaces are the sticky features that glue the customer to the service provider," the groups argued.

The consumer groups argued for universal standards rather than proprietary ones, to help open up the company to competition.

A number of companies and individuals have already complained that, in two instances, AOL designed software to exclude competitors. A group of consumers, not including any of the groups involved in the filing, has sued AOL in one of the cases.

The consumer groups argued Wednesday that AOL must be forced to open up any cable systems it acquires to competing high-speed Internet service providers.

In February, AOL's Steve Case and Time Warner's Gerald Levin pledged to open their system to others.

FCC Chairman William Kennard welcomed their statement at the time, saying he, "commend(ed) America Online and Time Warner for their leadership."

But key senators questioned the value of the promise at a congressional hearing on Feb. 29.

Utah Republican Orrin Hatch, chairman of the Senate Judiciary Committee, dismissed the promise as no more than a "promotional document" that lacked substance.

And when Senator Dianne Feinstein, a California Democrat, asked if the agreement for open access was legally binding, Levin dismissed that as a "legal nicety" and told her what mattered was his personal commitment.

An AOL spokeswoman said on Wednesday the pledge, "addresses all of the key points in the open-access debate," and had convinced several other cable companies to pledge their support for providing open access.

The consumer groups, arguing along the same lines as the senators, argued that regulators must put teeth into such pledges. Among other things, they said companies that believe they have been treated unfairly must be able to appeal the company's actions.

The merger has several hurdles to clear. The Federal Trade Commission will probably act first, deciding whether the merger complies with the nation's antitrust laws. It is possible the FTC may require the merged firm to divest some of its properties to avoid dominating particular areas of the industry.

After that, the FCC will apply its own, broader public interest standards.